Dollar Climbs Before Manufacturing, Jobs Reports; Aussie Weakens

The dollar strengthened before
reports economists said will show manufacturing in the
Philadelphia region expanded, while first-time jobless claims
were near the lowest since January 2008.

The U.S. currency rose against all its 16 major
counterparts after Federal Reserve Bank of Philadelphia
President Charles Plosser said he favors phasing out the central
bank’s asset purchases. The euro weakened for a sixth day
against the greenback, the longest losing streak in 12 months,
after a report confirmed consumer-price inflation in the region
slowed to the least in three years in April. Australia’s dollar
slid to an 11-month low as commodity prices declined.

“There’s been a change in expectations with respect to the
dollar,” said Jane Foley, a senior currency strategist at
Rabobank International in London. “May has brought news which
is more constructive. If the U.S. continues notching better
growth data, it brings in the likelihood that the Fed will start
paring its asset purchases.”

The dollar rose 0.4 percent to 102.68 yen at 7 a.m. in New
York after climbing to 102.76 yesterday, the strongest since
October 2008. The U.S. currency appreciated 0.2 percent to
$1.2867 per euro after reaching $1.2843 yesterday, the strongest
since April 4. The six-day gain is the longest since May 2012.
The single currency advanced 0.3 percent to 132.11 yen.

Manufacturing Expands

The Fed Bank of Philadelphia’s general economic index rose
to 2 in May from 1.3 the prior month, according to the median
estimate of economists in a Bloomberg survey. Initial jobless
claims were at 330,000 in the week through May 11, U.S. Labor
Department data will say today, a separate Bloomberg survey
showed. That compares with a reading of 323,000 a week earlier,
the least since January 2008.

The Fed is buying $85 billion of government and mortgage
debt a month to hold borrowing costs down.

“It’s not good for the bank to be holding lots of mortgage
paper” and “I would like to see us get out of mortgage-backed
securities,” Plosser said in an interview with Manus Cranny on
Bloomberg Television in Milan today. “But that’s not going to
happen very quickly.”

Plosser, who doesn’t vote on the Federal Open Market
Committee until 2014, is in favor of reducing the Fed’s monthly
pace of bond purchases as unemployment declines.

Economy Shrinks

The euro fell to a six-week low versus the greenback
yesterday on speculation the European Central Bank will have to
ease monetary policy further after data showed the region’s
economy shrank for a record sixth quarter.

Gross domestic product in the euro area contracted 0.2
percent last quarter, while the German economy grew 0.1 percent,
less than the 0.3 percent prediction in a Bloomberg survey. ECB
President Mario Draghi pledged on May 2 to ease policy again if
needed after officials cut their benchmark interest rate to
record 0.5 percent to spur growth.

“The growth data yesterday plus benign inflation will
leave open the question of whether the ECB is going to do more
easing,” Rabobank’s Foley said. The U.S. economy’s “contrast
with the euro region is quite marked.”

The euro area’s annual inflation rate declined to 1.2
percent in April from 1.7 percent in March, the European Union’s
statistics office said today, confirming the estimate released
on April 30. That’s the lowest rate since February 2010.

The extra yield investors demand to hold 10-year Treasuries
over similar-maturity German bunds expanded to 60 basis points,
or 0.6 percentage point, on May 14, the widest since June 2010,
based on closing-price data.

‘Dollar’s Favor’

“The relative performance of the economy and the yield
differential is working in the dollar’s favor,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo. “I
wouldn’t be surprised to see the euro drop to $1.275.”

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses
to track the currency against those of six major U.S. trade
partners, climbed 0.1 percent to 83.946 after rising to 84.094
yesterday, the highest level since July 24.

The dollar has strengthened 5 percent this year, the best
performer of 10 developed nation currencies tracked by Bloomberg
Correlation-Weighted Indexes. The euro gained 2.1 percent and
the yen tumbled 13 percent.

Australia’s dollar weakened against all except two of its
16 major counterparts on concern a slowdown in global growth
will hurt commodity prices.

“The Australian dollar has a little bit more room to fall
in the near term,” said Kengo Suzuki, chief currency strategist
at Mizuho Securities Co. in Tokyo. “Declines in commodity
prices are negative” for the currency, he said.

The so-called Aussie declined 1 percent to 98.01 U.S. cents
after sliding to 97.98, the weakest since June 6.